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You can give Colin Powell credit for that.
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Yen, Won, Asian Stocks Slump After North Korean Nuclear Test
By Jake Lee and Kyung Bok Cho
bloomberg.com
Oct. 9, 2006 (Bloomberg) -- The Japanese yen, South Korea's won and Asian stocks declined after the North Korean government said it had carried out a nuclear weapons test, defying calls for restraint from world leaders.
The yen fell to a seven-month low against the dollar of 119.18, from 118.83 before North Korea's government-controlled news agency reported the test. The won dropped 1.1 percent to 959.40 at 12:18 a.m. Seoul time, according to Barclays Capital. South Korea's Kospi stock index dropped 2.4 percent to 1320.77.
``The fact that North Korea has gone and done a nuclear test adds to a new level of uncertainty in that part of the world,' said Tony Morriss, a currency strategist at Australia & New Zealand Banking Group Ltd. in Sydney. ``The U.S. dollar will benefit from safe haven flows.'
North Korea, which announced plans for the test on Oct. 3, faces the prospect of a United Nations resolution that may include the threat of a military response. An Oct. 6 UN statement, drafted by Japan, expressed ``deep concern' about any test and said it would be a ``threat to international peace and security,' the standard for future Security Council action.
North Korea has ``safely and successfully conducted an underground nuclear test,' the Korea Central News Agency said, without giving details. The trial, the first announced by the government, was welcomed by the army and the people ``that have wished to have a powerful, self-reliant defense capability.'
The Morgan Stanley Capital International Asia-Pacific excluding Japan Index lost 0.9 percent to 343.04. Samsung Electronics Co., South Korea's biggest publicly traded company, fell 2 percent to 635,000. Stocks also slid in Hong Kong and Australia. Japan and Taiwan markets were closed for a public holiday.
Missile Tests
South Korea detected a 3.58 to 3.7 magnitude tremor in the North Korean town of Musudan-ri, Hwadae, on the east coast of North Hamkyong province at 10:35 a.m., presidential spokesman Yoon Tai Young told reporters in Seoul. The U.S. government issued a statement saying it couldn't confirm the test. Musudan- ri is the base from which Pyongyang launched its unsuccessful Taepodong-2 long-range ballistic missile of July 5.
The yen slid 0.8 percent and the won slumped as much as 1.1 percent on the day of those launches. Foreign investors have since sold $5.9 billion more Korean stocks than they bought.
``A nuclear test is different from just firing missiles,' said Yang Jeung Won, who oversees about $2.1 billion as chief investment officer at Samsung Investment Trust Management Co. in Seoul. ``North Korea is making its neighbors very nervous because unlike before, they don't look that eager to talk things out.'
China Reaction
The U.S. and Japan have been joined by South Korea, China and Russia in talks with North Korea aimed at getting the communist nation to scrap its nuclear program. China's government said in a statement that it ``firmly opposes' the test and that the nation had ``brazenly' disregarded international opinion.
``It depends on what kind of steps Japan, China and the U.S. will take, but it's bad for sentiment,' said Hans Goetti, a managing director in Singapore at Citigroup Private Bank, which oversees $1.5 billion in Asia. ``In the long term, markets are driven by economic performance. We don't think foreign investment will dry up' in South Korea.
The risk of owning South Korean bonds surged. The price of credit-default swaps based on $10 million of South Korea's dollar-denominated debt rose to $26,000 per year from $24,100 Sept. 6, according to data compiled by Bloomberg. It was the biggest increase in 16 months.
The five-year contracts, which protect bondholders against default, pay the buyer face value in exchange for the notes should the government fail to meet its obligations on time.
`Dangerous Scenario'
``This has now been taken to a different dimension, a much more dangerous scenario,' said John Teng, head of Asia credit research for Nomura International Hong Kong Ltd. ``It will make it more difficult for new issuers to come to the market.'
South Korea's credit rating won't be affected ``as long as North Korean geopolitical risks remain contained,' Thomas Byrne, New York-based senior credit officer and vice president at Moody's, said in a statement e-mailed to Bloomberg News. Takahira Ogawa, a director at Standard & Poor's in Singapore, said the outlook for the rating depends on the ``future course of action by the international community.'
A nuclear test is a threat to Japan, as Tokyo is 1,295 kilometers (809 miles) from Pyongyang. North Korea's firing of missiles in July sparked a debate on whether Japan should consider pre-emptive strikes, which are banned under current law. North Korea in 1998 fired a long-range missile that flew over Japan before landing in the Pacific Ocean. |
